Buyers compete with investors for short sales

New rules that went into effect recently give traditional buyers a chance to compete against cash-rich investors in the purchase of a home being sold via a short sale.

Most properties being considered for a short sale — where a lender agrees to a sale price that is less than the outstanding loan balance — as of Aug. 1 were required to be listed on a local multiple listing service for a minimum of five calendar days, including one weekend, before a loan servicer could submit the transaction to one of two quasi-governmental agencies for review or approval.

Basically, the new rule coming from Freddie Mac and Fannie Mae allows buyers and their agents to learn about short sales before investors scoop them up. Prior to the rule, the public never had a chance. Investors would purchase short sales before anyone even knew the properties were available.

In Servicing Guide Announcement SVC-2013-13 Fannie Mae said a “property must be listed on the applicable MLS, which covers the geographic area in which it is located … if a property is located in a area that is not covered by an MLS, the property must be advertised in a manner customary for that real estate market for at least five consecutive calendar days, including one weekend.”

The announcement also described policy changes and clarification on other issues, including:

• Credit report seasoning for standard short sale, which set guidelines on when a loan servicer is required to obtain a new credit report;

• Streamlined documentation requirements for transition from short sale to mortgage release, saying in some instances a servicer must use a borrower’s initial documentation when releasing a mortgage;

• Property inspection requirement for mortgage release, which requires servicers to ensure that the condition of a property is acceptable prior to release;

• Changes in the submission requirements from 48 hours to within five days for certain recording programs;

• Requires a servicer to submit some documents within 24 hours of the date the servicer accepts an executed mortgage release; and, along with other requirements

• Removed the requirement that servicers order a title insurance policy in conjunction with a mortgage release.Short sales and REOs — Real Estate Owned properties acquired by lenders through foreclosure — are an important yet diminishing part of the local housing market.

During July some 59 properties sold via short sale. That was 17.5 percent of all transactions and the lowest percentage of short sales since the Southland Regional Association of Realtors started collecting the data. Local short sales peaked at 41.2 percent in December.

Bob Khalsa is President of the Santa Clarita Valley Division of the Southland Regional Association of Realtors.

David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.